Incremental Cash Reserve Ratio (ICRR)

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Statutory CRR Requirements 

Banks are required to maintain a certain level of cash assets with The Reserve Bank of India at all times. The level of cash to maintain is computed from net liabilities of the bank, and known as the Cash Reserve Ratio.

Earlier, in terms of section 42(1) of the Reserve Bank of India (RBI) Act, 1934, the scheduled PCBs were required to maintain with the RBI during the fortnight, a minimum average daily balance of 3% of their total demand and time liabilities (DTL) in India obtaining on the last Friday of the second preceding fortnight. Further, RBI was empowered to increase, through Gazette notification, the said rate up to 15% of the DTL. The Reserve Bank of India Act, 1934 (RBI Act, 1934) was amended by Parliament in June 2006 and the Reserve Bank of India (Amendment) Bill, 2006 came into force with effect from April 1, 2007. As per the amendment, sub-section (1) of Section 42 of the RBI Act, 1934 was amended enabling the Reserve Bank, having regard to the needs of securing monetary stability in the country, to prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor or ceiling rate. Accordingly, with effect from April 1, 2007, Reserve Bank having regard to the needs of securing the monetary stability in the country, prescribes the CRR for Scheduled Primary Cooperative Banks (PCBs) without any floor or ceiling rate. 

Incremental CRR

"In terms of Section 42(1-A) of RBI Act, 1934, the Banks ( SCBs/ULBs ) are required to maintain, in addition to the balances prescribed under Section 42(1) of the Act, an additional average daily balance, the amount of which shall not be less than the rate specified by the RBI in the notification published in the Gazette of India from time to time. Such additional balance will be calculated with reference to the excess of the total of demand and time liabilities (DTL) of the bank as shown in the return referred to in Section 42(2) of the Reserve Bank of India Act, 1934 over the total of its DTL at the close of the business on the date specified in the notification.". 

The current/ latest rates as per RBI Monetary Policy are: SLR 18.00%, CRR is 4.50%, MSF is 6.75%, Repo Rate is: 6.50%, Reverse Repo Rate is 3.35%, and Bank Rate 6.75%. New Policy Rates by RBI in Indian Banking (as on 10 August, 2023)

On August 10, the Reserve Bank of India (RBI)asked banks to maintain an incremental Cash Reserve Ratio (ICRR) of 10 per cent on the increase in their deposits between May 19 and July 28.

With this policy comes into effect, banks will now have to park more liquid cash with the RBI.

However, RBI clarified banks that this is a temporary measure and that the ICRR will be reviewed on September 8, 2023. If liquidity balance is restored by then, the RBI may return the funds back to the banks ahead of the festival season so that credit growth in the economy is not affected.

AS it sucks cash out of banking system, it is expected to bring down the prices and hence the inflation. 

Business Line, RBI

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